Sunday, March 22, 2009

I thought "contracts were made to be broken"

Riddle me this: why is it that for years and years businesspeople used to say that "contracts were made to be broken," but as soon as the government steps in to financially back a company, they're all of a sudden saying that we have to "protect the sanctity of contracts?" I guess we can all afford to take the high road when we don't have to pay the bill.

When companies don't have unlimited funds at their disposal, it's amazing how creative and cooperative they can be with each other in renegotiating their obligations. If AIG had told its counterparties that they could either have their insurance premiums back or get nothing in a bankruptcy, wouldn't those counterparties have been willing to work something out? Instead, the government raced in with billions of dollars and made good on 40-to-one bets. Goodbye $170 billion of taxpayer money. How smart was that?

Businesses restructure deals and renegotiate contracts with employees, vendors, customers, and business partners all the time. The likes of Goldman Sachs are probably laughing their asses off at how naïve the government was for making good on their bets. If the government can't learn how to do business the way businesses do, then maybe it shouldn't be rushing into the corporate sector with billions of dollars in taxpayer money.

U.S. National Debt Clock

About Me

Pat has nearly 30 years of experience as a financial executive. He is a CPA and holds an MBA from MIT's Sloan School of Management, where he was a Sloan Fellow. Pat's research interests include investments, financial markets, leadership and ethics, innovation and business sustainability, I.T. strategy, corporate governance, economics, politics, and globalization.